New Zealand's recent elevation to "rock-star economy" status should be the catalyst for Australia to get its own economic and fiscal houses in order.
Australia may have recently vanquished New Zealand in cricket's World Cup, but in more recent times our plucky little neighbour is increasingly prevailing over us by way of comparative economic and fiscal achievement.
Growth in the New Zealand economy (3.3 per cent) was higher last year than Australia's (2.7 per cent) and, indeed, New Zealand's growth rate over the past 12 months exceeded that of other OECD member countries.
This faster rate of economic growth contributed to a slightly lower Kiwi unemployment rate (5.7 per cent) compared to Australia (6.1 per cent).
Improving economic conditions in New Zealand appear to have exerted a powerful effect upon Trans-Tasman migration rates, with emigration to Australia from New Zealand slowing to a trickle in recent times from 33,652 in 2013 to 2,024 in the year to January 2015.
There are also anecdotal reports of growing numbers of Australians settling in New Zealand seeking a more relaxed lifestyle with a lower cost of living, if not new economic opportunities in the growing Kiwi economy.
To add insult to injury, the Key government is planning to deliver a return to budget surplus more swiftly than Australia under the Abbott government, and there are elaborate plans to hold "parity parties" across the ditch in the event of the New Zealand dollar pegging level with ours.
On the presumption that Australia would ordinarily trump New Zealand by way of economic performance, it seems that our politicians, business leaders and even workers are now training their minds to developments across the Tasman and asking themselves "what is going on?".
Answering this question becomes more intriguing when two factors are taken into account.
The New Zealand economy may be growing at a faster rate than Australia's, but the gap in gross domestic product per capita, a common measurement of economic wellbeing, remains firmly in Australia's favour. That said, there is some disagreement about the extent to which New Zealand's GDP per capita is below that of Australia.
Drawing upon International Monetary Fund statistics, GDP per capita for New Zealand in 2013 ($33,626 in purchasing power parity terms) was about 26 per cent lower than the Australian figure ($45,138). Removing general government expenditures from the GDP figures, in order to obtain a rough estimate of the level of "private gross product" produced in both countries, the gap closes to about 21 per cent in Australia's favour.
If we accept the assessments of former Reserve Bank of New Zealand Governor Alan Bollard that New Zealand's economic performance has been statistically underestimated against Australia's, correcting this might further reduce the Trans-Tasman private GDP per capita gap to between 10 and 15 per cent.
Whatever the size of the gap in comparative economic performance, it does exist, and Australians are on average also endowed with better material living standards when measured in terms of house sizes, motor vehicle ownership, and mobile phone and internet usage.
Another issue to be considered is that on average Australians still earn more than New Zealanders in their respective home countries, with average wages being roughly 30 per cent higher here than in New Zealand.
The tendency has been for Kiwis to flock to Australia in great numbers and accumulate a higher average income — not to mention better living standards — over their working lives compared with their peers who stayed put in the North or South Island.
That such a migration trend is much less prevalent now certainly deserves an explanation, in the face of continuing income and living standard discrepancies.
In the wake of the devastating Christchurch earthquakes in 2010 and 2011, and with strong residential housing demand in Auckland, New Zealand has experienced a "construction boom" which has contributed to the strong economic growth recorded in recent times.
By contrast, Queensland had its own flood crisis in 2010 and 2011, leaving behind a significant property and infrastructure repair task, but in relative terms these natural disasters had much less impact upon the Australian economy as a whole.
Both Australia and New Zealand are aptly characterised as small, open economies, and accordingly their economic performances are heavily influenced by international demands for their abundant resource endowments.
Australia is facing a heavily discounted price for the iron ore it sells to China and other international markets, and this is contributing to flagging national income growth and tightening constraints upon Australian governments in their quest for more revenue.
While international prices for dairy products, a mainstay of New Zealand's export industries, have likewise moderated in recent months, dairy export volumes from New Zealand continue to trend upwards thanks in part to the increasing preference of Chinese consumers for milk.
Some commentators have also referred glowingly to the contribution of New Zealand's National government, led by John Key, in ushering a new wave of Kiwi prosperity by embarking upon welfare reforms, part-privatisations, and tax mix switches.
Key has even been labelled in some quarters in Australia as a radical reformer, although if one asks any self-respecting New Zealand classical liberal they would, rightly, suggest the Key government has only undertaken marginal reforms at best, whose full economic dividends will unfold over time.
As incremental as Key's reforms have been so far, his success in implementing reforms stands in contrast to the increasingly reform-shy style of modern Australian public governance.
In fact, over the last few years Australia has embarked on increasing the fiscal size of its government and allowing regulatory interventions to continue unabated.
These state experiments have exposed Australia as a high-cost, slow-growing economy and the resulting economic underperformance, magnified by the cyclical economic factors as mentioned previously, is starting to invite unfavourable comparisons even with New Zealand, let alone the rest of the world.
There is certainly no guarantee that New Zealand will continue to outpace the Australian economy, but the recent Kiwi economic improvement could serve as the wake-up call we need to free up our own economy and return our government budgets back to good shape.
If Australia uses the threat of a resurgent Kiwi economy to reform itself, it could be the greatest contribution New Zealand has ever made to Australian life, aside from Crowded House, Russell Crowe, Phar Lap, and the pavlova.
ADVERTISEMENT
No comments:
Post a Comment